Banks see merit in refinancing loans

Tags: News
The Reserve Bank of India (RBI) guidelines on reviving stressed assets is expected to encourage banks to refinance existing project loans after the central bank gave in to a longstanding demand allowing banks to reschedule a loan without having to classify it as restructured asset.

The existing norms on project loans make it man­datory to classify a loan as restructured if there is cha­nge in repayment schedule.

RK Saraf, deputy MD and CFO of SBI, said, “The intent is very good, we need to see how it can be implemented. Banks will be encouraged to take up project loans, but we need to see at what stage the loans are taken over by the banks and whether the banks will bear the risk at the implementation stage. Also, when it is taken over by some other agency, if banks will be compensated.”

Banks can now refinance any existing infrastructure and other project loans by way of takeout financing, even without a pre-determined agreement with other banks and financial institutions, and fix a longer repayment period.

These loans will not be considered as restructured if such loans are standard accounts in the books of existing banks, and should have not been restructured in the past. Such loans should be substantially taken over (more than 50 per cent of the outstanding loan by value) from the existing financing banks or financial institutions. The repayment period should be fixed by taking into account the life cycle of the project and cash flows from the project.

A senior official from India Infrastructure Finance Company (IIFCL) said, “The guidelines, however, do not specify the time when the loan can be taken over and makes it mandatory to take over more than 50 per cent of the outstanding loan. We need to see how many banks will have those.”

According to the existing guidelines on ‘takeout finance’, banks can refinance their existing infrastructure project loans by entering into takeout financing agreements with any financial institution on a pre-determined basis. If there is no pre-determined agreement, a standard account in the books of a bank can still be taken over by other banks/FIs, subject to RBI guidelines on transfer of borrowal accounts from one bank, according to the new guidelines.

Analyst firm Espirito Santo said in a note, “This is extremely positive for the industry as more banks will try to refinance existing loans given their ALM mismatches. Few organisations like IIFCL are more keen on takeout loans as of now and this will improve the balancesheets of the banks.

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